Abstract
Enron Corporation, which was the seventh-largest U.S. corporation prior to its collapse, will long be a case study on various corporate governance and ethical failures. But the most frightening aspect of Enron is that it was never designed or intended to be a massive fraudulent scheme from its inception, unlike many substantial financial frauds.
It began by simply trading energy futures and eventually expanded to trading futures in commodities well beyond the company’s expertise. To continue its positive financial performance, the company required its advisors to develop “blowback” strategies ensuring continued stock price appreciation.
These so-called “strategies” were largely concerned with tax and accounting planning scenarios and off-balance sheet entities. The attorney and accountant advisors who reviewed these prospective business transactions agreed with their ultimate design and implementation. Yet, with hindsight, it is clear that such devices lacked economic substance.
The purpose of this article is to examine the standards of tax review in light of Enron. In particular, a major focus will be the evolving nature of these standards and how a tax advisor should augment them. Failure to modify existing review standards may come at a very high price.
It is clear that tax advisors have come to a place where the streets are not marked and have much to lose. To recognize these higher stakes of tax review, this article will survey the causes of the Enron imbroglio, pre-Enron standards of tax review, tax policy and moral considerations in establishing a standard of review and the emerging post-Enron standards of tax review.
Recommended Citation
Harold S. Peckron,
Watchdogs That Failed to Bark: Standards of Tax Review After Enron,
5 Fla. Tax Rev.
(2002).
Available at: https://scholarship.law.ufl.edu/ftr/vol5/iss1/12